Editor’s Note: Trade wars are the equivalent of clobbering your own head with a hammer or poking yourself in the eye. U.S. economic policy these days seems to be the brainchild of The Three Stooges.

While politicians bluster about “winning” these battles, investors are left scrambling for cover as markets seize up, prices soar, and businesses suffocate under the weight of tariffs.

Below, I provide five sensible ways for you to not only survive the economic buffoonery, but also profit from it. For those who may have snoozed through economics class (much like some of our policymakers) now’s the time to sit up and take notes.

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When the math doesn’t add up…

Wall Street is having an anxiety attack as the U.S. picks fights on multiple fronts. China, Mexico, and Canada are all bracing for impact, while the European Union is next in line for a financial beating.

Stock market volatility is accelerating and the odds of a full-blown crash just got more likely. The CBOE Volatility Index (VIX), known as the “fear gauge,” has been rising, indicating heightened stress among investors. The main U.S. stock market indices are flirting with correction territory.

The adverse effects are global. On March 17, the OECD published its latest economic outlook, downgrading its global economic growth projections for 2025 and 2026 due to the disruption unleashed by the “America First” game plan.

The worst headwind cited in the OECD report are the tariffs imposed by the world’s largest economy, the United States.

Compared to its last outlook, published in December 2024, the OECD revised its global gross domestic product (GDP) growth projection for 2025 from 3.3% to 3.1% and its 2026 estimate from 3.3% to 3.0%. The OECD also predicts that tariffs will reignite inflation.

As the following chart shows, a global trade war results in mutually assured destruction, even among America’s traditional allies:

Nothing screams economic illiteracy like a global trade war. And yet, here we are again, watching politicians weaponize tariffs as if they were some kind of strategic masterstroke. They’re not. They’re a bludgeon, not a scalpel, and history has made it painfully clear that tariffs don’t work. They never have. They never will.

How Tariffs Really Work (Hint: Not Like Politicians Think)

When a government slaps tariffs on imported goods, the targeted country doesn’t foot the bill. That cost is passed along to (you guessed it) consumers and businesses.

Tariffs are often justified as a way to boost local consumption, but in reality, they do little to achieve that goal. Instead, they function as taxes on imported goods, with companies bringing foreign products into the country paying these taxes to the government.

Typically, tariffs are calculated as a percentage of a product’s value. For example, a 20% tariff on, say, Chinese goods adds $2 to the cost of a $10 product.

So, when policy makers try to “punish” China, all they’re really doing is punishing the average Joe trying to buy a washing machine or flat-screen television. Tariffs are just a sneaky tax, and a regressive one at that.

In reality, tariffs raise costs, reduce trade, and inspire retaliatory tariffs that create an economic doom loop. For proof, look no further than the Smoot-Hawley Tariff Act of 1930. It was supposed to protect American farmers and manufacturers. Instead, it helped plunge the world deeper into the Great Depression and set the stage for World War II.

Even economists who typically lean right (and who voted for Donald Trump) agree that tariffs are a disaster. But logic rarely stands in the way of the partisan theatrics on cable news.

Five Ways to Make Money Amid the Madness

If the current regime in the White House insists on undermining the global economy, what’s an investor to do? Fortunately, there are ways to not only protect your portfolio but also position yourself for outsized gains. Here’s your survival playbook:

1. Rotate into Small-Cap Stocks

What’s a small-cap stock? Typically, it’s a company with a market capitalization between $300 million and $2 billion. Think nimble, aggressive, and not weighed down by geopolitical strife.

Big multinational corporations rely on global supply chains, and tariffs can gut their bottom lines. Smaller companies, on the other hand, generate most of their revenue domestically, meaning they’re relatively insulated from tariff shocks.

Read This Story: Buckle Up, Small Caps Are Going on a Ride

Plus, small caps have been on a tear lately, and with economic uncertainty ahead, they’re poised to keep outperforming.

2. Bet on Emerging Markets (Yes, Really)

While tariffs hit U.S.-China trade hard, other emerging markets benefit. Countries like India, Vietnam, and Indonesia are picking up the slack as companies look for alternatives to Chinese manufacturing. Exchange-traded funds (ETFs) focused on these regions are likely to see significant gains.

3. Load Up on Inflation-Protected Assets

Tariffs fuel inflation. When the cost of raw materials and consumer goods goes up, so do prices across the board. Protect yourself by investing in Treasury Inflation-Protected Securities (TIPS), commodities, and real assets like real estate and infrastructure.

4. Favor Domestic Consumer Staples and Utilities

When economic uncertainty strikes, people still need to eat, turn on the lights, and brush their teeth (hopefully). Defensive sectors like consumer staples and utilities tend to perform well in downturns and trade war-induced volatility.

5. Hedge with Gold

When the world burns, gold shines. It’s the go-to safe haven asset when investors lose faith in fiat currencies and global stability. Gold prices have recently soared to record highs, surpassing $3,000 per ounce.

This surge in the yellow metal is attributed to several factors, including increased international tensions, heightened economic uncertainty, and renewed fears over inflation.

By rotating into small caps, diversifying into emerging markets, hedging against inflation, and taking refuge in defensive assets, you can turn political slapstick into profitable opportunities.

Questions or comments? Drop me a line: mailbag@investingdaily.com

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